You drive 5000 miles a year and buy gasoline at the price of $2/gal. Except for differences in annual costs, you are indifferent between driving a 10 year old Buick ($400/yr, 20 miles per gal) or a 10 year old Toyota ($800/yr, 50 miles per gal).
(a) Which one do you choose to drive?
(b) How does your decision change if the price of gas is $1.75 per gallon?© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/economics/applied-economics/cost-analysis-9r8g
... miles/20 miles per gallon = 250 gallons
Total cost = 400 per year + 250 X $2 per gallon = $900
For Toyota - number of gallons used = ...